Market Buzz

Market Buzz – Bridgewater Continues Strong Growth

Toronto’s main market ended down 1.81 points, or 0.02 per cent, at 11,629.63. Five of the index’s ten main sectors were lower, including the hefty financials group. The index is down 0.68 per cent on the week.

For the month, the Toronto Stock Exchange’s S&P/TSX composite index ended up 4.8 per cent, a solid rebound from a dismal January, when it fell more than 5 per cent.

For their parts, the Dow and the S&P 500 saw their best monthly gains since November, while the Nasdaq locked in its best advance since December. For February, the Dow rose 2.6 per cent, while the S&P 500 gained 2.9 per cent and the Nasdaq climbed 4.2 per cent.

Having said this, all three major U.S. stock indexes were also down for the week, following two weeks of gains. The Dow slipped 0.7 per cent, while the S&P 500 declined 0.4 per cent and the Nasdaq shed 0.3 per cent.

What sent them lower? Likely U.S. economic data that reinforced views of rapid growth this year, particularly in respect to the housing market which appears to have yet to fully stabilize. Add to this consumer sentiment that is weakening and we are left with a decidedly cautious broader market. In the end, this is about where we should be, proceeding with caution.

This past week marked the reporting of the 2009 fiscal year-end results from our top tech selection for 2009, Bridgewater Systems Corporation (BWC:TSX). Bridgewater is a mobile personalization company which has seen its shares gain over 200 per cent in the past 12 months on continued strong financial performance.

Revenue of $66.7 million for fiscal 2009 increased 51 per cent compared with $44.2 million for fiscal 2008. The year-over-year increase mainly reflects contribution from new products, such as the Home Subscriber Server and Policy Controller, license revenue from existing customers, as well as revenue from the delivery of integrated solutions.

Net earnings for 2009 were $11.2 million, or $0.44 per share fully diluted, versus $2.8 million, or $0.11 per share fully diluted, in the prior year.

Looniversity – When is Insider Activity Useful?

First, we define insiders as any person who has or has had access to valuable nonpublic information about a corporation.

While insider activity can in many cases be no reflection on the future of a company, according to Craig Columbus, chief market strategist at Thomson Financial, which studies insider activity, the following trends – tracking the telling moves of so-called “all-star” insiders – are worth paying attention to.

1) Sector Watch – Sectors with patterns of peaks and troughs create opportunities for savvy executives to trade and, as such, insider activity can often be quite useful. Columbus says insider buying in financial, retail, machinery, oil/oil service, medical supply, and semi-conductor can be a positive sign, while executive selling at software, retail, computer, communications equipment, semi-conductor and biotech sectors can be a negative sign.

2) Small-caps – Both buying and selling (particularly selling), from insiders, of companies with market capitalizations below $500 million should be paid particular attention.

3) Bigwigs – The higher the insider is on the corporate ladder, the better the quality of information becomes on predicting future price movements. In other words, the trades of CEOs, chief financial officers and presidents tend to be more predictive than the trades of other officers and directors. These individuals are often in the best position to rate the company’s prospects.

Put it to Us?

Q. If the price of one of my stocks drops, where does my money go?

– Darcy Maul; Toronto, Ontario

A. First, a quick review of stock basics: Owning a stock means owning a portion (usually very small) of a company. If the value of the entire company fluctuates, so will the value of your stock.

When a share’s price decreases in value, that change in value is not redistributed amongst any parties; the value of the company simply shrinks. The stock market is governed by the forces of supply and demand. In other words, it is not a zero-sum game, like gambling in a casino, in which there is an equal loser for every winner and vice versa.

So, even though it might feel like someone is taking your money when your stock declines, the cash is simply disappearing into thin air with the popularity of the stock. However, this decline in popularity corresponds to something tangible; the company’s ability to carry on its operations efficiently, which is reflected in its earnings.

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